Japan Exit Tax on Securities: What You Need to Know Before Leaving Japan
【Koshida Accounting Firm Column Date:】
Hello, my name is Taisei Koshida, and I am a certified public accountant and tax accountant.
I aim to assist non-Japanese business owners who need help with reading or writing in Japanese. If you find the Japanese tax return system challenging, I can help you with your tax filings.
Many foreign residents are unaware that Japan has an Exit Tax system. If you own securities or other financial assets before leaving Japan, you may become subject to tax on unrealized capital gains. This article explains who is affected, which assets are covered, and when the tax may apply.
1. Who Is Subject to Japan’s Exit Tax?
Japan’s Exit Tax generally applies if the total value of the relevant assets is JPY 100 million or more at the time of departure and you have had a domicile or residence in Japan for more than five years during the ten years before leaving Japan.
However, periods during which you lived in Japan under statuses of residence listed in Appended Table I of the Immigration Control and Refugee Recognition Act are generally excluded when calculating this five-year period. These include statuses such as Professor and Business Manager. By contrast, periods under statuses such as Permanent Resident or Spouse of a Japanese National generally count toward the residence-period test.
2. Which Assets Are Subject to Exit Tax?
Assets subject to Japan’s Exit Tax include securities such as listed and unlisted shares and investment trusts, interests in anonymous partnerships, unsettled margin or when-issued transactions, and unsettled derivative transactions. Both Japanese and foreign securities may be included.
If the total value of the relevant assets is JPY 100 million or more, unrealized gains may become taxable when you leave Japan.
3. When Are Assets Valued?
The valuation date depends on when you file your tax return.
If you appoint a tax agent and file your tax return after leaving Japan, the assets are generally valued at the time you leave Japan.
If you do not appoint a tax agent and therefore file before leaving Japan, the assets are generally valued as of three months before your scheduled departure date. Assets acquired after that date are generally valued at the time of acquisition.
4. Can You Defer Japan’s Exit Tax?
Yes. In certain cases, you may defer payment of Japan’s Exit Tax by appointing a tax agent before leaving Japan, filing the required documents, and providing sufficient security.
The deferral period is generally five years from the date of departure and may be extended to a maximum of ten years if the required procedures are completed.
Annual reporting requirements must also be satisfied throughout the deferral period.
5. Planning Ahead to Reduce the Impact of Japan’s Exit Tax
If you are a non-permanent resident of Japan, capital gains from certain securities may be treated as foreign-source income for Japanese tax purposes, depending on when the securities were acquired and other statutory conditions.
Where the gain qualifies as foreign-source income, Japan’s remittance-based taxation rules may apply. In such cases, the amount taxable in Japan may depend on remittances made to Japan during the same calendar year.
With careful planning, it may be possible to coordinate the timing of remittances and the sale of securities. However, the remittance-based taxation rules and Japan’s Exit Tax are separate rules and should be considered together before taking any action.
Depending on your circumstances, planning before departure can help reduce the overall tax burden and lessen the practical impact of Japan’s Exit Tax. Professional advice is recommended before taking any action.
Leaving Japan can have important Japanese tax consequences, especially if you own securities, investment funds, or other financial assets. Reviewing your tax position before departure may help you avoid unexpected tax liabilities.
For more information about remittances while you are a non-permanent resident, see Does Using a U.S. Credit Card in Japan Count as a Remittance?
For a practical explanation of Japanese tax filing for non-permanent residents, see How to Prepare a Japanese Tax Return for U.S. Non-Permanent Residents: Remittances, IRA, and Foreign Tax Credits.
Need Help With Japan’s Exit Tax?
Our accounting office regularly assists foreign business owners and individuals with Japanese tax planning, tax filings, and cross-border tax matters. Through our professional network, we can also introduce trusted specialists in immigration, company registration, social insurance, legal matters, and business consulting.
If you are planning to leave Japan and would like advice on Japan’s Exit Tax or other Japanese tax issues, please feel free to contact us. Early tax planning before leaving Japan can often make a significant difference.